Today’s reverse mortgages are vastly different from yesteryear’s. Montgomery native Jason Higham, Texas Loan Originator and Branch Manager at Cherry Creek Mortgage, provides an update on how these loans can be game-changers for qualifying seniors.
“Leveraging home equity through a reverse mortgage could play a key role in boosting your financial strategy for a more secure future,” says Higham. “It’s important to clarify how these loans originate today and dispel the myths.”
The Evolution of Reverse Mortgages
Congress created Home Equity Conversion Mortgages (HECMs) in 1987 to help cash-strapped borrowers, 62 and older, draw interest from their homes to pay for everyday living expenses and critical needs. “Well into the 2000s, these were largely private loans from private banks with few rules, oversight, or qualification standards,” says Higham. “You probably remember the hard-sell commercials that sounded too good to be true. That’s why the FHA reformed the HECM program in 2010 and added safeguards for seniors.”
Before the reform, there were no income qualifications to check if borrowers could pay for their property taxes, homeowners insurance, and HOA fees. These qualification standards now exist as well as tighter borrowing limits, stricter financial requirements, stronger spousal protections, and required loan counseling as part of applying for a HUD-approved HECM mortgage.
What Exactly is a Reverse Mortgage?
An FHA HECM reverse mortgage loan is for primary homes only. The program allows borrowers over age 62 to access their home equity and turn it into tax-free cash while retaining home ownership and residency — without a mortgage payment. The downpayment is dependent on age; the older you are, the less you put down.
Flexible ways to receive funds include choosing a full lump sum, a partial lump sum, a line of credit, or a combination through monthly payments. It’s a way to fund longevity by supplementing retirement income, varying by the age of the youngest borrower or eligible non-borrowing spouse, the current interest rate, the lesser of appraised value or the mortgage limit, or the sales price. You can use a HECM loan for refinances and purchases.
The Value of Reverse Mortgages
It might be difficult to achieve a “smarter retirement” for many reasons — longer lifespans, inflation, medical expenses, shrunken 401(k) balances, fewer traditional pensions, smaller nest eggs, lack of a financial safety net, and the high cost of downsizing or relocating. Higham educates borrowers about loan options and the reverse mortgage process to determine if the program can help overcome these challenges.
Without mortgage payments, borrowers may wonder what happens if they pass away and their home is upside down. “That’s the million-dollar question,” says Higham. “These are nonrecourse loans. If the loan debt is more than what the house is currently worth, the loan balance does not affect the estate. The family can contact the FHA and file a claim. The FHA will take the house back, or the family gets the first right of refusal to buy it at 95% of market value. Because this type of loan protects seniors, as well as their families and their estates, reverse mortgages are often recommended by estate planners.”
Learn More
Visit cherrycreektexas.com and contact Jason Higham at highamteam@ccmclending.com to discover what a loan might achieve for you.